The Sustainable Infrastructure Income Trust

No, there has not been any scandal involving fudging the books or
sweatshop labor. Rather, most investors simply don’t seem to
“get” his company.

His company recently went public as a REIT, or Real Estate
Investment Trust, and the traditional REIT investor likes the
familiar. They invest for income, and for many, a track
record of past income and dividends is a must. While Eckel’s
company manages $1.8 billion of securitized energy efficient and
sustainable infrastructure assets, it has not been able to invest
in such assets itself until the funds from its IPO made that
possible.

Dividend Policy

Commence dividend in Q2

Grow dividend as capital deployed

Distribute substantially all net income

Ramped yield of 7%

Yield targeted to exceed MLPs and infrastructure
funds

Eckel’s firm is now in the process of investing those IPO
proceeds, and he expects the average investment will yield near
5.5%. Using a 2 to 1 leverage ratio, he plans to ramp that
up to 7% of the IPO price ($12.50.) This is well above the
yields of most other REITs, but given that there are no other
REITs which invest in the same asset class, traditionally
conservative REIT investors don’t seem to know what to make of
it. Eckel’s predicted yield translates to annual earnings
(almost all of which will be distributed to shareholders) of
around 88 cents a share. The two analysts who have initiated
coverage so far are predicting 2014 earnings of $0.84 and $1.08,
which makes sense given that Eckel is probably being a bit
conservative about his earnings projections in order not to
disappoint Wall Street.

One other, somewhat less serious, problem Eckel has is the name
of his firm.

If you have never heard of “The Sustainable Infrastructure
Income Trust” in this article’s headline, that’s because the
company does not (yet) exist. I recently sat down with Mr.
Eckel at the Renewable Energy Finance Forum (REFF) Wall Street,
and suggested the name to him. His company is called Hannon
Armstrong Sustainable Infrastructure Capital (NYSE:HASI).
I think the re-branding might make it easier to convey exactly
what his firm does.

Many successful public companies have names that don’t describe
their businesses. Proctor and Gamble (NYSE:PG) doesn’t
monitor exams at casinos, and Honeywell (NYSE:HON)
doesn’t raise bees. But for every Honeywell or
P&G, there’s a General Electric (NYSE:GE)
and a Waste Management (NYSE:WM).

I think small, environmentally oriented, investors might pay a
little more for HASI than professional income investors. The
professionals care a lot about the financial sustainability of the
dividend, but could not care less about the environmental aspects
of the business of funding energy efficiency and other sustainable
investments. Retail investors are more likely to care about
both. It might be easier to attract their attention if
Hannon Armstrong’s name were more descriptive of what
it does. Hannon Armstrong produces sustainable income from
sustainable infrastructure investments; the name should reflect
that. Hence, “The Sustainable Infrastructure
Income Trust.”

Eckel seemed to take my idea seriously, so there may be some
re-branding in HASI’s future. He got an extra nudge
less than an hour later: The moderator of a panel he was speaking
on at REFF Wall Street choked while trying to say “Hannon
Armstrong” in Eckel’s introduction. No doubt it was a
coincidence, but it spurred me to write this article.

Rebranding or no, real dividends will get the attention of
traditional REIT investors even if HASI’s environmental
credentials do not. HASI will announce second quarter
results and its first dividend on August 8th. That will give
investors a taste, and I expect the stock price to “ramp up” from
there as successive dividends are announced. My guess is
that we’ll see the full dividend by Q1 2014.

I like investing in companies that are having difficulty
communicating their stories to Wall Street. Eventually, the
hard earnings numbers will reflect the company’s reality.
Whenever I have a chance to buy a stock before I have to pay
full price, I’m as happy as a fashionista who finds a pair of
Manolo Blahniks in the clearance bin at Bergdorf.

I don’t know when the sale on Hannon Armstrong Sustainable
Infrastructure Capital will end, but it could be as soon as the
first dividend announcement on August 8th.

DISCLAIMER: Past performance is
not a guarantee or a reliable indicator of future results.
This article contains the current opinions of the author and such
opinions are subject to change without notice. This article
has been distributed for informational purposes only. Forecasts,
estimates, and certain information contained herein should not be
considered as investment advice or a recommendation of any
particular security, strategy or investment product.
Information contained herein has been obtained from sources
believed to be reliable, but not guaranteed.